VietNamNet Bridge – The decreases in the kieu hoi (overseas remittance) inflow to Vietnam and the declines in the operation of financial channels in Vietnam have both raised big worries. Is the decline temporary, or is this a worrying long term tendency?

Where kieu hoi comes from?

According to the World Bank, Vietnam is the 16th biggest kieu hoi receiver in the world and the 9th biggest receiver among developing countries with 8.26 billion dollars remitted to Vietnam in 2010 and 9 billion dollars in 2011.

A survey conducted on official remittance channels, the majority of the kieu hoi came from the US, where there is the most crowded community of overseas Vietnamese people. Meanwhile, HCM City is the locality which receives the highest volume of kieu hoi (55.6 percent of kieu hoi to Vietnam in 2011).

According to the National Finance Supervision Council, a high percentage (52 percent) of the kieu hoi has been used as capital invested in the real estate sector.

The figure of 9 billion dollars worth of kieu hoi in 2011 showed that the kieu hoi has been increasing steadily and rapidly over the last 10 years, if noting that only 1.75 billion dollars were remitted in 2001.

The state’s open policies have helped attract kieu hoi sources. Since August 2003, joint stock banks can set up companies specializing in providing kieu hoi services, thus helping make the remittance easier.

The experts from the banking academy, after analyzing the influences of kieu hoi to the Vietnam’s national economy, emphasized the four things the “gold stream” can bring.

Firstly, kieu hoi serves as a stable source of foreign currencies to Vietnam amid the instability of other sources, including the foreign direct investment (FDI) and official development assistance (ODA). In 2011, the kieu hoi to Vietnam was just 2 billion dollars lower than the FDI registered capital.

Secondly, kieu hoi helps keep the national payment in balance. In 2011, the Vietnam’s trade gap of 9.8 billion dollars (the import turnover was 9.8 billion dollars higher than export turnover), was offset by the kieu hoi.

Thirdly, kieu hoi helps push up the integration of Vietnam into the international financial system, improve service quality and establish relations with foreign banks.

And fourthly, kieu hoi has helped improve the living standards, attract investment and reduce the unemployment rate.

Is the current decline temporary or long-lasting?

Nhip cau dau tu quoted its sources as reporting that by the end of June 2012, about 1.9 billion dollar worth of kieu hoi had flown to HCM City, a sharp fall of 500 million dollars in comparison with the same period of the last year.

The big difficulties of the world economy, the domestic frozen real estate market, the policy on setting dollar ceiling interest rate all have been cited to explain the sharp decrease.

A research work by Pfau and Long published in 2006 showed that 73 percent of foreign currencies were used for consumption purpose, while only 6.6 percent for investment. However, later, kieu hoi has been used as investment capital.

The kieu hoi flow has decreased recently, because overseas Vietnamese and their relatives in Vietnam cannot see good business opportunities. The real estate sector, which attracts big investments (4.7 billion dollars in 2011), has become frozen.

Meanwhile, they also do not have many opportunities to invest in domestic businesses. The uncertainties of the national economy, which has forced the State Bank to apply a tightened monetary policy, has put a hard pressure on commercial banks and businesses. The lack of experience in dealing with risks has led to 8.4 percent (31,425 businesses out of 375,732) getting dissolved.

Thien Thuan – Van Anh